Myanmar's army signed a peace agreement to end its long-lasting civil war, but drug cartels—and corrupt military officials—are providing an incentive for the militias to stick around.

A policeman rides past as a fire engulfs about $930 million USD worth of illicit drugs in Yangon, Myanmar, in this file photo taken by Jason Reed/ Reuters.

The biggest thing standing in the way of lasting peace in northern Myanmar isn't political differences, or even the region's long history of conflict with the state, it's crystal meth, according to a new report released by the International Crisis Group.

The report, titled "Fire and Ice: Conflict and Drugs in Myanmar's Shan State," focuses on the impacts of a monumental shift in drug manufacturing in the Golden Triangle region from heroin and opium to meth and its cheaper cousin, the amphetamine pill known as yaba. The meth industry in Shan State, located near the borders of China, Thailand, and Laos, now brings in so much money that this illicit economy dwarfs the money made by legitimate industries, the report found.

With so much of this money entering the hands of both corrupt members of the Myanmar military, or Tatmadaw, and the militias and paramilitary groups that carved up much of the region, there's little hope of a full-scale disarmament or end to the conflict, the report concluded.

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"The drug trade is an important source of revenue for armed groups and militias, with the huge profits fueling greater militarization in Shan State that, while it does not always produce immediate or intense armed clashes, greatly undermines the future prospects for peace," the report reads. "Illicit activity also drives a political economy dominated by armed groups, organized crime and corruption that will be more difficult to dislodge over time and as it generates greater profits.

"Graft and other ills associated with the drugs trade aggravate the grievances among ethnic minorities at the heart of the long-running civil war."

Today, it's the conflict and ongoing humanitarian crisis in Myanmar's Rakhine State, where the Tatmadaw has been accused of committing acts of genocide against Rohingya Muslims, that grabs most of the headlines, but for decades it was conflicts in the north, places like Shan and Kachin states, that were responsible for the displacement of more than 100,000 people.

The "Nationwide Ceasefire Agreement" between the government and nearly a dozen indigenous armed groups in 2015 put an end to what was, at the time, one of the world's longest-simmering civil wars. But the specifics of that ceasefire had some unintended consequences in Shan State, where the Tatmadaw struck tenuous deals with pro-government militias and paramilitary groups who were allowed to retain control over their territories as long as they stopped fighting the state.

This new patchwork of semi-autonomous territories run by armed groups, as well as checkpoints and local tax schemes, created the perfect environment for a new kind of narco industry to grow. The Golden Triangle had already begun to shift from opium and heroin to meth and yaba amid pressure from China—an important political force in a region that's closer to China than Myanmar's capital—and eradication efforts backed by the United States as part of its global "war on drugs."

Opium production levels in 2017 were only 26 percent what they were in 1996, according to data compiled by the United Nations Office on Drugs and Crime. The production of amphetamines, on the other hand, has continued to rise, with recent estimates placing total amount of product made in Shan State last year in excess of 250 metric tons.

But, according to a report by Bibhu Prasad Routray, a Singapore-based securities analyst, there's another reason behind the shift away from opium and heroin in the Golden Triangle—money.

"The decline in opium cultivation has occurred, UNODC admits, against the backdrop of ‘a changing regional drug market,’" the report read. "While opium and heroin prices have fallen in recent years, most East and Southeast Asian countries report a shift to synthetic drugs and especially Amphetamine-Type Stimulants (ATS) in various forms. It appears much of the reduction in poppy growing areas has taken place not so much due to official policies and enforcement but due to the fact that poppy-based drugs are now less profitable than synthetic."

It's not that heroin production has stopped in the Golden Triangle—it's still the world's second-largest source of the drug—it's just that the profits from meth are so much higher, and a lot more concentrated in the hands of a few well-connected—and well armed—people, the International Crisis Group found.

The report details the escalating price of meth as it moves from factories in Shan State to users in wealthier countries like Australia. A kilo of meth in Shan State might sell for $3,000 USD, but by the time it reaches Australia—often with the help of Australian biker gangs who set up in Thailand—that same kilo is worth $600,000 USD in street sales.

It's no surprise that the meth industry in Shan State likely rakes in billions of USD annually. Local press is full of stories of massive drug busts across the region. 700 kilos in Thailand, worth an estimated $22 million USD. 1.2 metric tons in Malaysia, the biggest bust in the country's history. 1.6 metric tons in a single bust in Indonesia—the quantities just keep rising.

The amount of drugs is so staggering that UNODC made the Golden Triangle meth trade a focus of a special regional coordination meeting in Myanmar's capital Naypyidaw in May of last year. At the time, UNODC had estimated that the meth trade was worth some $40 billion USD annually.

Jeremy Douglas, the regional representative for UNODC in Southeast Asia, was pretty frank in his assessment of the issue, pointing out that the industry had been allowed to grow thanks to the "conditions" in northern Myanmar— namely a state of relative lawlessness and a well-established patronage network of corruption and protection.

"Ensuring governance and the rule of law will be crucial to any long-term reduction in drug production and trafficking," Douglas said, according to Reuters.

"To be candid, it also means addressing the corruption, conditions, and vulnerabilities that allow organized crime to keep expanding operations."

That kind of money is sure to breed corruption, especially in a place run by a network of loosely affiliated armed groups operating under a fragile—and occasionally violated—peace agreement. The sheer amount of money to be made in Shan State has also created a sticky problem standing in the way of lasting peace, the International Crisis Group report concluded.

"But if the drugs trade is partly a symptom of Shan State's conflicts, it's also an obstacle to sustainably ending them," the report read. "Militias and other armed actors that control areas of production and trafficking routes have a disincentive to demobilize, given that weapons, territorial control, and the absence of state institutions are essential to those revenues...

"Myanmar’s military, which has ultimate authority over militias and paramilitaries and profits from their activities, can only justify the existence of such groups in the context of the broader ethnic conflict in the state—so the military also has less incentive to end that conflict."

The military and authorities in Myanmar need to get serious about rooting out corruption and severing ties with militias that have known meth connections, the report argued.

Until then Shan State will continue to be one of the world's biggest, and quietest, narco states.